Johnson Outdoors Inc. (JOUT) - Description of business

Segments As
noted
above, the Company has four reportable business segments. See Note 12 to the
Consolidated Financial Statements included elsewhere in this report for
financial information concerning each business segment. International
Operations See
Note
12 to the Consolidated Financial Statements included elsewhere in this report
for financial information comparing the Company’s domestic and international
operations. See Note 1, subheading “Foreign Operations and Related Derivative
Financial Instruments,” to the Consolidated Financial Statements included
elsewhere in this report for information respecting risks related to the
Company’s foreign operations. Research
and Development The
Company commits significant resources to research and new product development.
The Company expenses research and development costs as incurred except for
costs
of software development for new fishfinder products which are capitalized once
technological feasibility is established. These costs are then amortized over
the expected life of the software. The amounts expensed by the Company in
connection with research and development activities for each of the last three
fiscal years are set forth in the Company’s Consolidated Statements of
Operations included elsewhere in this report. Competition The
Company believes its products compete favorably on the basis of product
innovation, product performance and marketing support and, to a lesser extent,
price. Marine
Electronics:
The main competitor in electric trolling motors is Motor Guide, owned by
Brunswick Corporation, which manufactures and sells a full range of trolling
motors and accessories. Competition in this business is focused on product
quality/durability as well as product benefits and features for fishing. The
main competitors in the charger market are Dual Pro from Charging Systems
International, Guest from Marinco and ProMariner from Professional Mariner.
Competition in this business is focused on charging time, safety, performance
and durability. The main competitors in the fishfinder market are Lowrance,
Garmin, Navman, and Ray Marine. Competition in this business is focused on
quality of sonar imaging and display as well as the integration of mapping
and
GPS technology. The main competitors in the downrigger market are Big Jon,
Walker and Scotty. Competition in this business focuses on ease of operation,
speed and durability. Outdoor
Equipment:
The Company’s brands and products compete in the sporting goods and specialty
segments of the outdoor equipment market. Competitive brands with a strong
position in the sporting goods channel include Coleman and private label brands.
The Company also competes with specialty companies such as The North Face and
Kelty on the basis of materials and innovative designs for consumers who want
performance products priced at a value. The Company also competes in the
commercial tent market with Anchor Industries and Aztec for tension and frame
tents along with canopies based on structure and styling. The Company also
competes for military tent contracts under the U.S. Government bidding process;
competitors include Base-X, DHS Systems and Alaska Structures, Camel,
Outdoor Ventures, and Diamond Brands. Watercraft:
The Company primarily competes in the paddle sport segment of kayaks and canoes.
The main competitors are Confluence Watersports/Watermark and Wenonah Canoe
which compete on the basis of their design, performance and
quality. Diving:
The main competitors in Diving include Aqualung/U.S. Divers, Oceanic, Mares,
Cressi-sub, and Suunto, each of which competes on the basis of product
innovation, performance, quality and safety. Employees At
September 29, 2006, the Company had approximately 1,300 permanent employees.
The
Company considers its employee relations to be excellent. Temporary employees
are utilized to manage peaks in the seasonal manufacturing of
products. Backlog Unfilled
orders for future delivery of products totaled approximately $51.2 million
at
September 29, 2006 and $37.5 million at September 30, 2005. For the majority
of
its products, the Company’s businesses do not receive significant orders in
advance of expected shipment dates, with the exception of the military tent
business which has orders outstanding based on contractual
agreements. Patents,
Trademarks and Proprietary Rights The
Company owns no single patent that is material to its business as a whole.
However, the Company holds various patents, principally for diving products,
electric motors and fishfinders and regularly files applications for patents.
The Company has numerous trademarks and trade names which it considers important
to its business, many of which are noted on the preceding pages. The Company
vigorously defends its intellectual property rights. Sources
and Availability of Materials The
Company’s products are made using materials that are generally in adequate
supply and are available from a variety of third-party suppliers. The
Company has an exclusive supply contract with a single vendor for materials
used
in its military tent business. Interruption or loss in the availability of
these
materials could have a material adverse impact on the sales and operating
results of the Company’s Outdoor Equipment business. Seasonality The
Company’s business is seasonal. The following table shows, for the past three
fiscal years, the total net sales and operating profit or loss of the Company
for each quarter, as a percentage of the total year.
Year
Ended
September
29, 2006
September
30, 2005
October
1, 2004
Quarter
Ended
Net
Sales
Operating
Profit
(Loss)
Net
Sales
Operating
Profit
(Loss)
Net
Sales
Operating
Profit
(Loss)
December
19
%
(4
)%
20
%
—
%
18
%
7
%
March
27
40
28
54
27
45
June
34
67
32
76
34
72
September
20
(3
)
20
(30
)
21
(24
)
100
%
100
%
100
%
100
%
100
%
100
%
Available
Information The
Company maintains a website at www.johnsonoutdoors.com. On its website, the
Company makes available, free of charge, its Annual Report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments
to
those reports, as soon as reasonably practical after the reports have been
electronically filed or furnished
to the Securities and Exchange Commission. In addition, the Company makes
available on its website, free of charge, its (a) Code of Business Conduct;
(b)
Code of Ethics for its Chief Executive Officer and Senior Financial and
Accounting Officers; and (c) the charters for the following committees of the
Board of Directors: Audit; Compensation; Executive; and Nominating and Corporate
Governance. The Company is not including the information contained on or
available through its website as a part of, or incorporating such information
by
reference into, this Annual Report on Form 10-K. This
report includes all material information about the Company that is included
on
the Company’s website and is otherwise required to be included in this
report. ITEM
1A. RISK
FACTORS The
risks
described below are not the only risks we face. Additional risks that we do
not
yet know of or that we currently think are immaterial may also impair our future
business operations. If any of the events or circumstances described in the
following risks actually occur, our business, financial condition or results
of
operations could be materially adversely affected. In such cases, the trading
price of our common stock could decline. Our
net sales and profitability depend on our ability to continue to conceive,
design and market products that appeal to our consumers. The
introduction of new products is critical in our industry and to our growth
strategy. Our business depends on our ability to continue to conceive, design,
manufacture and market new products and upon continued market acceptance of
our
product offering. Rapidly changing consumer preferences and trends make it
difficult to predict how long consumer demand for our existing products will
continue or what new products will be successful. Our current products may
not
continue to be popular or new products that we may introduce may not achieve
adequate consumer acceptance for us to recover development, manufacturing,
marketing and other costs. A decline in consumer demand for our products, our
failure to develop new products on a timely basis in anticipation of changing
consumer preferences or the failure of our new products to achieve and sustain
consumer acceptance could reduce our net sales and profitability. Competition
in our markets could reduce our net sales and
profitability. We
operate in highly competitive markets. We compete with several large domestic
and foreign companies such as Brunswick, Lowrance, Confluence and Aqualung/U.S.
Divers, with private label products sold by many of our retail customers and
with other producers of outdoor recreation products. Some of our competitors
have longer operating histories, stronger brand recognition and greater
financial, technical, marketing and other resources than us. In addition, we
may
face competition from new participants in our markets because the outdoor
recreation product industries have limited barriers to entry. We experience
price competition for our products, and competition for shelf space at
retailers, all of which may increase in the future. If we cannot compete
successfully in the future, our net sales and profitability will likely
decline. Trademark
infringement or other intellectual property claims relating to our products
could increase our costs. Our
industry is susceptible to litigation regarding trademark and patent
infringement and other intellectual property rights. We could be either a
plaintiff or defendant in trademark and patent infringement claims and claims
of
breach of license from time to time. The prosecution or defense of intellectual
property litigation is both costly and disruptive of the time and resources
of
our management even if the claim or defense against us is without merit. We
could also be required to pay substantial damages or settlement costs to resolve
intellectual property litigation. Sales
of our products are seasonal, which causes our operating results to vary from
quarter to quarter. Sales
of
our products are seasonal. Historically, our net sales and profitability have
peaked in the second and third fiscal quarters due to the buying patterns of
our
customers. Seasonal variations in operating results may cause our results to
fluctuate significantly in the first and fourth quarters and may tend to depress
our stock price during the first and fourth quarters. The
trading price of shares of our common stock fluctuates and investors in our
common stock may experience substantial losses. The
trading price of our common stock has been volatile and may continue to be
volatile in the future. The trading price of our common stock could decline
or
fluctuate in response to a variety of factors, including:
· the
timing of our announcements or those of our competitors concerning
significant product developments, acquisitions or financial
performance; · fluctuation
in our quarterly operating results; · announcements
concerning new contracts with the U.S. Military;